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Reflections on the Filipino Community Bank Model

I recently spent a week with colleagues at the World Vision and VisionFund affiliated microfinance institution (MFI), Community Economic Ventures, Inc (CEVI), in the Philippines. Today, our Filipino MFI has grown to serve more than 32,000 borrowers each year with a loan portfolio that totals well over $4,000,000

Upon our arrival, we were met by what CEVI calls a “cluster group” of micro borrowers. This group of borrowers meets on a weekly basis during a formal time that includes bible study, prayer, financial instruction, and a time to get current and pay back their weekly loan instalment.

The building this group was meeting in had been built by World Vision and was intended to be used by the community. Sitting no more than ten yards from the ocean, it was easy to understand that small fishing initiatives were the primary business activities supported through micro loans in this area.

At most MFIs, cluster groups include 20-30 members who cross guarantee each other’s loans. This is done because members don’t have existing capital or collateral to guarantee outstanding loans. Simply put, borrowers guarantee to the MFI that each member of the group will repay, and if they do not, other members will be personally held responsible for the outstanding debt.

It’s a brilliant system. Consumer banking in the industrialised world is made possible through attaching either collateral or a credit score to an individual. However, the majority of the world’s population does not have either adequate collateral or a credit rating to secure a loan.

Towards the end of the meeting we attended, a young lady named Jovita stood up and introduced herself to the group. In this small community the introduction was done as a formality, as Jovita was already familiar with everyone in attendance at the meeting, and conversely, everyone attending knew perfectly well who Jovita was.

Jovita was known throughout her community as an upstanding woman, who had a strong work ethic and the tenacity to succeed. To increase profits of her family’s fishing business she was requesting to be added to the cluster group, and receive a loan from CEVI. Even as she made her case, cluster group members had already decided in their own minds whether she would be invited to join or not.

Half way through Jovita’s appeal, a micro borrower in the audience spoke up and declared, “I will cosign for Jovita!” This led to an avalanche of group endorsement, and Jovita was invited to join the small circle of micro entrepreneurs and secure a loan through CEVI.

In our modern day world of financial equations, computers, and economists who determine the economic future of us all, it was refreshing to see in the Philippines that economic decisions were made not based on an economic analysis alone, but on someone’s reputation within a community cultivated through years of integrity and hard work.

Now that Jovita has been accepted into this cluster group, and will soon receive a small loan from CEVI, it will only be a matter of time before she can expand her family’s fishing business and provide a better future for herself and her family.

Through fostering the development of small businesses, families are able to use their profits to buy nutritious food, access healthcare, and ensure their children receive a quality education. Additional family income improves not only the life of the borrower, but their children’s future and the local community are also positively impacted.